Tuesday, May 17, 2011

Gold Stays Steady Near $1,495, Then Breaks Down

The U.K. inflation number for April has been released, and it shows a jump from March's 4.0% to 4.5%. That jump was explained as the result of higher air fares, and is expected to reverse next month. The Bank of England is expected to leave its rate unchanged at 0.5%. Gold didn't take much notice of the jump, the gold market evidently agreeing with the one-off take.

After starting off the evening at $1,490, the metal climbed up to $1,495 late last night as the greenback slipped back from one of its runs. Having reached $1,495, the metal fluctuated around that level. It did get as high as $1,499.60 around 4 AM ET, but dropped to as low as $1,490.90 a short while afterwards. Rebounding again, it stayed stuck in the low 1490s but with frequent visits to $1,495. As of 8:10, the spot price was $1,492.20 for a gain of $2.40 on the day. The KitcoGold Index attributed +$2.40 to predominant buying and -$0.90 to a strengthening greenback.

The U.S. Dollar Index fluctuated, but those climbs and slides ended up with a wash. Starting at 75.6, the Index made two peaks in the high 75.7s but it fell back below 75.5 after the second peak. After an aborted recovery, it slipped back and then got traction enough for a more durable climb. As of 8:19, it was steady at 75.65.

“There’s still a lot of uncertainty in the euro zone” and some physical buyers consider the price “relatively cheap,” said Bernard Sin, the head of currency and metal trading at MKS Finance SA, a bullion refiner in Geneva. “It’s a trading market and it’s no surprise that big investors liquidated positions. They may reinstate positions at a certain point and it doesn’t necessarily mean that others are going to follow.”

Soros also reduced his stakes in a few major gold producers. John Paulson has stayed pat.

"We want to remain bullish of gold, but we are technically fearful that spot gold is edging toward the edge of a precipice and we urge caution at the moment," said independent financial-markets commentator Dennis Gartman.

Mr. Gartman said the market's trading range is becoming increasingly constricted and that the "battle between the bullish and bearish forces, like the trench warfare of World War I, is growing more and more severe."

"One side shall soon vanquish the other, and we fear that for the moment it may be that the bears triumph," he said.

An RBC Capital analyst is also quoted as warning of the risk of a slide in the near term, even though gold has the potential for making another record later this year.

April U.S. housing starts declined 10.6% from an upwardly-revised annualized figure of 585,000 for March. Instead of the expected 575,000, April's figure was 523,000. That news, released at 8:30, did not help gold. Instead, the metal tumbled from the low 1490s to $1,483.00 before bouncing back. As of 8:41, gold had bounced back a bit to reach $1,486.70 for a drop of $3.10 on the day. The Kitco Gold Index split the loss into -$1.50 for predominant selling and -$1.60 for greenback strengthening. The U.S. Dollar Index didn't react that much to the news, but it blipped up later before falling back. As of 8:45, it had paused at 75.66.

Gold did not have a good start to today's pit session, and may have a rough time during the rest of the day. Still, support at $1,490 may not have evaporated even if the news that George Soros dumped almost all of his ETF holdings brought pessimism to the market. Gold is still well above its interday low of about $1,465, and should stay above that low today.

Originally, The Gold Bubble was a perch for me to watch what I pegged as a nascent gold bubble - or, to be less controversial, the third stage of a long-term gold bull market.

As time went on, I drifted towards commentary on gold and the greenback, plus the interrelation between the two. The rest of the posts featured items about gold that I thought were interesting. I ended up diverging from the theme that the title promised.

So, I've reactivated the old blog under a different name. "The Gold Watcher" is a more accurate title for the blog that The Gold Bubble became.

The Enter Stage Right article that kicked off the predecessor blog contains a fuller explanation of my reasoning about a gold bubble: it's here. A sequel is here.

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Disclaimer

Although I try to compensate, I do have opinions that are almost certainly influenced by what I've done with my own money. For the record, I am long gold-exploration stocks. On the odd chance I mention one that I own, I'll disclose it fully. I don't own any physical gold, nor do I own any producers or any well-known explorers.

Also, I must emphasize that I am not a registered investment advisor, and that I am not licensed to dispense investment advice in my jurisdiction of residence (Ontario, Canada). Consequently, this is not an investment-advice blog. It shouldn't be taken as such. I cannot provide any actionable material in the standard sense of the term; if you're intrigued by anything here, you'll have to see to your own trigger.

In addition to the standard boilerplate caution for you to do your own due diligence should you invest or speculate, I'd like to add a special caution: gold, by far, is the asset class that elicits the most emotions. A solid consensus of experieced investment professionals considers emotionality to be a performance-hobbler. In addition to doing your own research, and/or using a licensed professional to do so, I suggest that you watch yourself.